How does child support affect eligibility for student aid?

I have been divorced for more than 10 years and receive a small
amount of child support from my ex-husband. At the time of the
divorce, I agreed to let my him claim my daughter on his income tax
return during the odd years. He does not cooperate with any other
expenses, so the bulk falls on me. He is anxiously waiting for next
year when my daughter turns 18 to stop giving me child
support. However, the divorce papers actually require my ex-husband to
provide child support until my daughter graduates from college. He
seems to have forgotten this little detail. Am I better off allowing
him to end child support at age 18 so that I can claim her on my
income tax returns, or should I seek to enforce the divorce decree? I
do not want him to get a big refund for claiming my daughter on
his income tax when I’m the one providing most of her support.
— Viviana S.

The parent with whom the child lived the most during the last twelve
months is the one responsible for completing the Free Application for
Federal Student Aid (FAFSA). If the child lived equally with both
parents, the parent who provided more support to the child is
responsible for completing the FAFSA. This is based on the actual
support provided, not the parent who claims the child as an exemption
on their federal income tax return. So regardless of whether you or
your ex-husband claims your daughter as an exemption, you will still
be responsible for completing the FAFSA since she lives with you and
gets most of her support from you.

Each exemption reduces taxable income on your federal income tax
return by $3,650 (2009 figures). The financial benefit of the
reduction in taxable income depends on your tax bracket. If you are in
the 25% tax bracket, the exemption reduces tax liability by 25% of
$3,650 = $912.50. If you are in the 15% tax bracket, it reduces tax
liability by $547.50. (Note that there may be a similar but smaller
financial benefit from claiming the exemption on your state income tax
return.)

You should also consider the financial benefit from the Hope
Scholarship tax credit in your calculations. In order to claim the
Hope Scholarship based on the qualified tuition and related expenses
that you pay for your daughter’s college education, you must list your
daughter as an exemption on your federal income tax return. The
maximum Hope Scholarship tax credit is $2,500 in 2009 and in 2010. If
the Hope Scholarship tax credit is not extended by Congress, the
maximum amount will revert to $1,800 in 2011.

From a financial perspective, if the annual child support payments
exceed these reductions in tax liability, you are better off enforcing
the child support requirements of the divorce decree.

From a legal perspective, however, you may have no choice but to
enforce the divorce decree. Child support is the result of a court
order entered by the judge for the benefit of the child, not the
parent. You do not necessarily have the legal standing to waive your
daughter’s rights. You may need to seek a modification of that order
from the court. You should consult with a qualified attorney if you
want to waive the remaining child support payments in exchange for the
exemptions.

I’m behind about $280 in child support. I applied for financial aid
for school. Will my past due balance of $280 on child support affect
my financial aid? Will the $280 be taken out of my financial aid?
Will I even be awarded a Pell grant if I owe $280 in child support?
My EFC is 0.
— Tabatha M.

Under current federal law, a failure to pay child support does not
directly affect eligibility for the Pell Grant, nor will the Pell
Grant be diverted to pay past due child support obligations.

Some state education grants, on the other hand, may be withheld if you
are more than 30 days in arrears in court-ordered child support.

Child support payments may have an indirect impact on eligibility for
the Pell Grant. If you provide more than half of your child’s support,
you can count the child in your household size on the Free Application
for Federal Student Aid (FAFSA) even if the child does not live with
you. (The support test is based on your actual child support payments, not the
amount you owe.) This will reduce your total income by about $4,200. If you
provide less than half support to the child, you do not get to count
the child in household size. Instead, you report your actual child
support payments on the FAFSA, which has the effect of reducing total
income by the amount of your actual child support payments. Thus
paying your full child support obligations can increase your
eligibility for the Pell Grant.

I am a single applicant with three people living in my household
under my support, my girlfriend and her two children. The kids do not
receive support from their father, only me, but I am not their legal
guardian. Mom (my girlfriend) does not work, so I am the sole provider
for all four of us. Can I count them on my FAFSA?
— Jason M.

If they live with you and you provide more than half their support,
you can count the mother and her children on your FAFSA even if you
are not married to the mother.